Growth Versus Austerity?

European governments have successfully hijacked the press with their argument that there is a ‘trade-off’ between growth policies versus austerity. What a load of rubbish…

…the embarassingly Keynesian argument goes like this. Governments are able to create much needed growth by spending more than they collect in taxes. Austerity programs restrict growth since government fiscal deficits are limited. Therefore, government’s should be allowed to spend their way out of recession and thereby reduce their debt. Sound familiar?

This rubbish argument is easily countered by the following observation: if fiscal deficits lead to growth and debt reduction, then how come Europe has such a huge debt problem in the first place? Clearly, deficit budgeting neither promotes growth nor reduces debt. In fact, it is the root cause of the problem.

The frightening aspect of the growth v austerity debate is that there are very few commentators who are prepared to stand up and label the supposed trade-off as the rubbish that it is. It seems that opinion shapers prefer to embrace fairytales during times of crisis rather than reality. Europe, however, will not live happily ever after until they stop spending money that they don’t have…